Tuesday, November 6, 2007

Chrysler Follows the Strip-and-Flip Playbook


Nov 1 2007
Chrysler Follows the Strip-and-Flip Playbook

The Private Equity Council has what might seem to be a very tough job: persuading lawmakers that private equity principals shouldn't pay income tax on their income. In reality, however, the job is easier than that – all they need to do is donate enormous sums of money to both political parties, and then come up with a fig-leaf talking point or two that the politicians can use to justify their pusillanimity. Foremost among these talking points is that private equity, far from following the strip-and-flip playbook, actually creates employment.

Well, it's lucky that the idea of taxing private equity principals seems to have fallen into abeyance at this point, because Cerberus has just announced another 10,000 or so job cuts, on top of the 13,000 layoffs it announced in February. Worse, it's done so while maxmizing corporatespeak:

"We have to move now to adjust the way our company looks and acts to reflect a smaller market," said Chrysler President Tom LaSorda on Thursday. "That means a cost base that is right-sized and an appropriate level of plant utilization."

A cost base that is right-sized? Does LaSorda seriously believe that talking like this will get him any brownie points with his employees or the general public? (His shareholders don't care in the slightest about what he says, only about what he achieves.)

If Stephen Feinberg makes hundreds of millions of dollars on this Chrysler deal as a result of slashing jobs ("right-sizing") his cost base, it's going to be very hard for him to make the case that he's contributing so much to the greater good that he shouldn't have to pay much in the way of tax on his profits. Still, I'm sure that his buddies at the Private Equity Council will do their best to try.

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